Day trading is not a video game; it’s a job (to be honest, it would be a pretty terrible video game). Keeping careful records helps you identify not only how well you follow your strategy but also ways to refine it. These records can also show you how successful your trading is, and it makes your life a lot easier when tax time comes around.
Set up your spreadsheet
The easiest way to get started tracking your trades is with a spreadsheet. Set up columns for the asset being purchased, the time of the trade, the price, the quantity purchased, and the commission. Then set up similar columns to show what happens when the position is closed out. Finally, calculate your performance based on the change in the security’s price and the dollars and percentage return on your trade.
Profit and loss statement
If you look at the bottom of the trade tracking spreadsheet, you see some quick summary statistics on how the day’s trading went: trading profits net of commissions, trading profits as a percentage of trading capital, and the ratio of winning to losing transactions. This information should be transferred into another spreadsheet so that you can track your ongoing success.
At the end of the trading week, calculate your hourly wage. That number, more than any other, can help you see whether it makes sense for you to keep trading or whether you’d be better off pursuing a different line of work.
The trading diary
A trading diary gives you information to systematically assess your trading. Write down why you are making a particular trade when you make it. (If you wait until later, you’ll forget, and you’ll change your logic to suit your needs.) Was the reason because of a signal from your system? Because of a hunch? Because you saw an opportunity that was too good to pass up? Because your clairvoyant aunt called you with a prediction?Some traders create a form and make copies of it so they can easily fill them out during the day. They even create predetermined indicators that match their strategies and that they can check off or circle. At the end of the day, they collect their diary sheets into a three-ring binder that they can refer back to when the time comes to evaluate their trading strategy and performance.
If your trading style is so fast that you don’t have time to fill it out, come up with some kind of shorthand that lets you keep a running tally of trades made based on a signal from your system, trades based on your own hunches, and trades based on other interpretations of market conditions. Then match your notes against the trader confirmations from your broker to see how you did. Good luck!